Arbitration Process Issues

Fifth Circuit Reversed Judgment Compelling Arbitration Because Unsigned Arbitration Agreement Was Invalid

July 3, 2018 by John Pitblado

This matter involved a lawsuit brought in Texas federal court by a former employee (Huckaba) against Ref-Chem L.P., alleging sexual harassment, discrimination and retaliation in violation of Title VII. Ref-Chem moved to dismiss the lawsuit and compel arbitration, which was granted by the Texas district court, finding that Huckaba’s “continued employment” after she signed an arbitration agreement “constituted acceptance of that agreement” by both parties, even though Ref-Chem never executed the agreement. Huckaba appealed to the Fifth Circuit.

The Fifth Circuit reversed the Texas district court’s judgment, holding that the express language of the arbitration agreement at issue required for it to be signed by both parties and it was undisputed that Ref-Chem did not sign the agreement. Therefore, there was no valid agreement to arbitrate in this case, and thus, the court remanded to the district court for further proceedings.

Huckaba v. Ref-Chem, L.P., No. 17-50341 (5th Cir. June 11, 2018).

This post written by Jeanne Kohler.

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Eleventh Circuit Finds Defendant Can’t Use Unsigned Consent to Receive Text Messages to Compel Arbitration Of TCPA Claim

June 26, 2018 by Rob DiUbaldo

Hope Gamble sued New England Auto Finance, Inc. (NEAF) in federal court under the Telephone Consumer Protection Act (TCPA). Ms. Gamble alleged that NEAF, from which she had previously borrowed money to buy a car, sent her text messages without her consent. NEAF moved to compel arbitration under an arbitration agreement contained within her loan agreement. That loan agreement also contained a Text Consent Provision that would have granted NEAF the right to send Ms. Gamble text messages, but this provision required a separate signature, and Ms. Gamble did not sign it. The district court found that the TCPA claim was not covered by the arbitration agreement and denied NEAF’s motion.

On appeal, the NEAF argued that the arbitration agreement, which required arbitration of any “claim, dispute or controversy . . . whether preexisting, present or future, that in any way arises from or relates to this Agreement or the Motor Vehicle securing this Agreement,” was broad enough to encompass the TCPA claim. The Eleventh Circuit rejected this argument, however, as the text messages in question did not involve her auto loan, which Ms. Gamble had paid off before the relevant text messages were sent. The NEAF further argued that the Text Consent Provision governed the issue of Ms. Gamble’s consent to receive text messages, even though she had not signed that provision. Again, the Court disagreed, finding that Ms. Gamble’s right not to receive text messages was created by Congress through the TCPA, not by any agreement with NEAF, and certainly not by the unsigned Text Consent Provision that, because it was unsigned, created no rights or obligations for anyone. Thus, the Court affirmed the denial of NEAF’s motion to compel arbitration.

Gamble v. New England Auto Finance, Inc., No. 17-15343 (11th Cir. May 31, 2018)

This post written by Jason Brost.

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Multi-Million Russian Mall Investment Dispute Remains In Limbo As Ninth Circuit Vacates Turnover Order Requiring Release Of Assets Held In Lichtenstein Trust

June 19, 2018 by Michael Wolgin

In a matter between Petitioner Vitaly Smagin and Respondent Ashot Yegiazaryan, the London Court of International Arbitration awarded Smagin about $72 million in damages plus about $20 million in interest and fees. A U.S. district court then confirmed the award. Yegiazaryan then appealed to the Ninth Circuit, taking issue with (1) an order of attorneys’ fees against him; (2) a post-judgment injunction against him, freezing some $115 million in assets; and (3) a turnover order against him regarding a Liechtenstein trust that is now the subject of ongoing proceedings in Liechtenstein courts.

With respect to the grant of attorney’s fees, the Ninth Circuit vacated the award as an abuse of discretion, finding that the district court granted Smagin’s request for attorney’s fees without entering any finding on bad faith. With regard to the injunction resulting in the freezing of Yegiazaryan’s assets, however, the Ninth Circuit upheld the decision, reasoning that the district court identified a clear, case-specific risk that Yegiazaryan might evade the court’s jurisdiction or contravene its judgment by funneling assets through a “reshuffled deck of shell companies and bank accounts across the Caribbean, Cyprus, Monaco, Liechtenstein, or whatever other amicable havens he finds.” Regarding the turnover order, which commanded Yegiazaryan to turn over assets of a Liechtenstein trust, the Ninth Circuit vacated the order as premature. The Ninth Circuit reasoned that its decision was guided by the principles of “adjudicatory comity,” that is, “discretion of a national court to decline to exercise jurisdiction over a case before it when that case is pending in a foreign court with proper jurisdiction.” Smagin v. Yegiazaryan, Case No. 17-56467 (9th Cir. May 18, 2018).

This post written by Gail Jankowski.

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Court Applies Arbitration And Continued Performance Provisions Of One Contract To A Separate Performance Guaranty Agreement

June 18, 2018 by Michael Wolgin

This lawsuit centered around a contract providing a guaranty of performance in connection with an underlying broadband network access contract. The underlying contract called for binding arbitration of any disputes and required the parties “to continue performing their respective obligations under the Agreement … while the dispute is being resolved.” The guaranty did not contain the same “continuing performance” clause, but it did include a clause incorporating “all other provisions [of the underlying agreement] relating to dispute resolution or arbitration.” The guarantor argued that the “continued performance” clause of the underlying contract only imposed an obligation on its subsidiary, the party to the underlying contract. But, according to the court, “this argument makes no sense.” “[W]hen the parties to the Guaranty agree that they incorporate a clause saying that the ‘Parties agree to perform their respective obligations under the Agreement … while a dispute is being resolved,’ then that incorporation plainly means that the parties to the incorporating contract (i.e., the Guaranty) agree to perform their obligations under that contract pending resolution of any dispute. Otherwise, the incorporation would do no work.” As such, the guaranty’s incorporation of “all other provisions relating to dispute resolution or arbitration” subjected the guarantor to the underlying contract’s continuing performance obligations pending resolution of the dispute. Axia Netmedia Corp. v. Massachusetts Tech. Park Corp., Case No. 17-1607 (1st Cir. Apr. 25, 2018)

This post written by Benjamin E. Stearns.

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California Court of Appeals Affirms Decision that Arbitration Provision and Its Delegation Clause Were Unlawful and Void

June 14, 2018 by John Pitblado

The California Court of Appeals rejected defendants’ appeal seeking to enforce an arbitration provision in a reinsurance participation agreement (“RPA”). Several months prior, the California Insurance Commissioner issued an administrative decision which challenged the same insurance program offered by the same defendants, finding the RPA to be unlawful and void for various reasons, including for the carrier’s failure to file with and obtain approval from the Commissioner.

In its motion to compel arbitration, defendant argued that the language in the arbitration provision of the RPA which stated that “all disputes between the parties relating in any way to (1) the execution and deliver, construction or enforceability of this Agreement… shall be finally determined exclusively by binding arbitration in accordance with the procedures provided herein” required arbitration of disputes concerning the enforceability of the RPA, and “was a delegation clause that gave the arbitrator the sole and exclusive authority to rule on challenges to the enforceability of the arbitration agreement.” However, the trial court determined that the plaintiff was asserting both the arbitration clauses and the delegation clauses themselves are illegal and unenforceable because they were not filed and approved by the Commissioner.

On appeal, the Court determined the trial court properly found plaintiff’s challenge to the delegation clause was sufficient to require the court to rule on the question of enforceability, as courts are to resolve this question when the challenge is directed specifically to the delegation clause. In a similar matter, the Fourth Circuit recently held the court was the proper entity to resolve challenges to a delegation clause in a similar RPA.

Finding “that the arbitration and delegation provisions were prohibited because they were not properly filed with the Insurance Commissioner,” the Court affirmed the trial court’s decision that the arbitration and delegation clauses were unenforceable, as “a contract made in violation of a regulatory statute is void.”

Nielsen Contracting, Inc. v. Applied Underwriters, Inc., D072393 (Cal. Ct. App. May 3, 2018).

This post written by Nora A. Valenza-Frost.

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